Minnesota Foreclosures 101: Foreclosure Basics | Attorney Aaron Hall

Minnesota Foreclosures 101: Foreclosure Basics

This article discusses the basics of Minnesota foreclosures. This is part one of a series on Minnesota foreclosures:

  1. Minnesota Foreclosure Law: Foreclosure Basics
  2. Minnesota Foreclosure Law: Foreclosure by Advertisement
  3. Minnesota Foreclosure Law: Foreclosure by Action
  4. Minnesota Foreclosure Law: Deficiency Judgments
  5. Minnesota Foreclosure Law: Foreclosure of a 2nd Mortgage

Let’s start by explaining what a foreclosure is. Once you default on a mortgage (don’t pay your mortgage bill), a bank may foreclose on the mortgage. A foreclosure is the process of a bank (mortgagee) having the sheriff sell your property at a sheriff’s sale (foreclosure sale).

At a foreclosure sale, the bank will usually bid on your home at least the amount that you owe on the mortgage, because the money paid to the sheriff will be used to pay back the mortgage; in this situation, the bank is a buyer and the seller, so the bank gets its money right back (after the sheriff gets his fees). Often, the sheriff won’t even require the bank to bring the money because the sheriff knows the bank is the buyer and the seller. If someone else bids on your home at a sheriff’s sale, they will have to make arrangements for immediate payment of the purchase price.

Foreclosure on Your Minnesota Home

If you own a Minnesota home that is facing foreclosure, you may be wondering about the consequences to you and your legal options.

A foreclosure on your home will be reported to the credit bureaus and affect your credit rating. You will likely be liable for the amount of the mortgage that is unpaid after the foreclosure sale (deficiency amount) if the foreclosure is by action (lawsuit) rather than by advertisement. You will normally not be liable for the deficiency amount if the foreclosure is by advertisement rather than by action.

Who decides whether it will be an Action or Advertisement foreclosure?

Whether the foreclosure is by Action or by Advertisement is decided by the bank. The bank’s decision is usually based on your financial viability and whether the bank believes it is worth spending additional money to sue you and go after your assets, instead of doing a Foreclosure by Action. That is, the bank must decide whether a Foreclosure by Action and a subsequent judgment against you is worth the cost of a lawsuit (legal fees, etc.).

When do you find out whether foreclosure is by Advertisement or by Action?

After you have missed some payments and your loan is in default, the bank will begin the foreclosure process. This process involves gathering documentation, sending it to a law firm, and the attorneys starting the legal foreclosure process. In a Foreclosure by Advertisement, the lawyers send notice to the homeowner and publish the foreclosure in the local legal newspaper. In a Foreclosure by Action, the lawyers sue the homeowner. Thus, the homeowner won’t know whether the foreclosure is by Advertisement or Action until the homeowner receives either a notice (Foreclosure by Advertisement) or summons and complaint (Foreclosure by Action).

What are other differences between Foreclosure by Advertisement and Foreclosure by Action?

There are other differences between Foreclosure by Advertisement and Foreclosure by Action. The most notable difference is that a deficiency judgment is not available in Foreclosure by Advertisement but a deficiency judgment is available in Foreclosure by Action. Learn more here:

Of course, there are important exceptions to these rules, and due to their complexity, you should consult with a Minnesota real estate attorney before assuming that these general rules apply to your situation.

You should also know that if your home sold by foreclosure, you can buy your home back during the six-month redemption period for the price that the home sold for. Sometimes, the home will sell for far less than the mortgage, which means you might be able to buy it back at an incredible deal if you can borrow money from friends or family.

On a related note, here is a news story from MPR News from December 12, 2010, about people buying back their homes after the bank pays a low price at the sheriff’s sale: Some Foreclosed Homeowners in Minnesota are Buying Back Their Homes at Great Prices.

Buying Foreclosed Homes in Minnesota

You may have heard about people getting great deals buying foreclosed property. While you might still find good deals, you should be aware that there are substantial risks involved, and you are competing with sophisticated home buyers who work for the mortgage companies, and they have substantial resources at their fingertips including professional appraisers, actuaries, and years of experience in the industry.

If you are considering buying a foreclosed home in Minnesota, you should be thoroughly apprised of the risks by understanding what other mortgages may be on the property, the redemption period of the prior owner, and other encumbrances and liens that could affect marketable title. One important lean that could be on the property is a tax lien.

Additional Minnesota Foreclosure Resources

Learn more about Minnesota Foreclosures:

  1. Minnesota Foreclosure Law
  2. Foreclosure by Advertisement
  3. Foreclosure by Action
  4. Deficiency Judgments
  5. Foreclosure of a 2nd Mortgage

If you are facing a foreclosure in Minnesota, contact a Minnesota real estate attorney to understand your legal rights, risks, and options.

18 comments
Minnesota Foreclosures: Foreclosure by Advertisement says September 9, 2010

[…] Minnesota Foreclosures 101 – Foreclosure Basics […]

David Widell says October 5, 2011

This does not address second mortgages. Even if it is a foreclosure by advertisement, can’t the second mortgage come after you for the difference since they did not initial the foreclosure?

Harun Rashid says October 5, 2011

David:

Yes. If there is a second mortgage (also called a junior mortgage), that mortgage company can pursue the former homeowner for the amount owned on the second mortgage. This would be a breach of contract case (among other potential claims).

Aaron

Louise says December 15, 2011

I would explain this different because I believe the house is not really “sold.”

Let’s start by explaining what a foreclosure is. Once you default on a mortgage (don’t pay your mortgage bill), a bank may foreclose on the mortgage. A foreclosure is the process of a bank (mortgagee) having the sheriff sell your property at a sheriff’s sale (foreclosure sale).

I would say “…the sheriff sells the rights to own the property.” OR “…the sheriff sells the mortgage which is the lien on the property and law allows repossession of the property.”

Harun Rashid says December 15, 2011

Louise:

You make a good point. Although the property is sold, the homeowner stays in possession during the redemption period, which is usually six months. During the redemption period, the homeowner can buy back the home for the price the home was sold for at the foreclosure sale.

Aaron

Louise says December 15, 2011

Thank you; people hear it differently anyway. Adding what you did would probably help homeowners understand instead of giving up right then, even though you may say it later.
I like how you said this: “…for your info on this website; in this situation, the bank is a buyer and the seller, so the bank gets its money right back (after the sheriff gets his fees). Often, the sheriff won’t even require the bank to bring the money because the sheriff knows the bank is the buyer and the seller….”

Nick says January 18, 2012

If the home was set up on 80/20 terms in order to purchase/refinance the home. 1st and 2nd mortgages were taken out the same time to finance the entire amount owing. The house was foreclosed by advertisement. Is it possible that the 2nd mortgage holder (same as the 1st mortgage holder) would pursue a deficiency judgment or is there some protection in MN in regards to this scenario?

Harun Rashid says January 18, 2012

Nick:

After the first mortgage is foreclosed, the lender/bank with the second mortgage may sue the borrower (former homeowner) for the deficiency.

Aaron

alikix says January 31, 2012

After my home have been forclosed I call the realtor in order to move my belongings since they changed the locks 2 days prior to the date I was notified they will have the sheriff removed me from the property.Wich I think is illegal.Now i got a certified note to inform me that my property will be sold.Is this legal?

Harun Rashid says February 1, 2012

Alikix:

I’m sorry, but I cannot determine whether this is legal without analyzing the legal documents related to the situation. In general, it is illegal for anyone to enter your property or change the locks until the sheriff has lawfully evicted the owner.

Aaron

jeremy says April 12, 2012

If I have a second mortgage how long after the foreclosure do they have to sue me. There must be a certain time frame they have.

Aaron Hall, Minnesota Lawyer says April 12, 2012

Jeremy:

In general, the statute of limitations for contracts is 6 years from the date of last activity on the account. So if you haven’t paid for 6 years, the statute of limitations would likely prevent them from bringing a suit against you.

Aaron

mike says April 21, 2012

If the auction date happened and the house was already sold, how long does the process take before I have to leave the household, i am a renter who is still paying rent on a being foreclosed house n have no extra money, n my landlord is tryin to give me false information. Was wondering if there was some sort of advice u can give me. And my landlord has been takin my rent for almost two years without a renters permit ain’t that illegal

Aaron Hall, Minnesota Lawyer says April 21, 2012

Mike:

You have a right to be in the property until you are evicted by a judge in court (writ of eviction) after an eviction hearing. This is usually at least 6 months after the foreclosure sale.

Aaron

mike says April 21, 2012

And if the householder were to leave the household before the foreclosure process has happened, is there a way for a renter to take over the legal payments on the utilities until the foreclosure is settled.

Aaron Hall, Minnesota Lawyer says April 21, 2012

Mike:

I’m not sure what you mean by “householder.” Unfortunately, this blog can only provide general legal informatino. For specific advice regarding your particular situation, you need to meet with an attorney.

Aaron

Sally says July 22, 2012

Dear Aaron,

My house is for sale as a conventional sale. If it does not sell by the end of this month, I may default on the August payment. Will the house be able to remain on the market as a conventional sale for August? Beyond August? Please advise on this specific question – how many days after my first missed mortgage payment is the house no longer able to sell as a conventional sale?

Thank you.

Aaron Hall, Minnesota Lawyer says July 23, 2012

Sally:

I’m not exactly sure what you mean by a “conventional sale” but I’ll try to answer your question. You may continue to market and sell your home in the usual manner even though you have missed mortgage payments (i.g. defaulted on your mortgage), but once a foreclosure sale occurs, the transaction would turn into a redemption instead of a usual sale.

Aaron

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